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A frantic man in underpants and a gas mask races a beat-up RV down a dirt desert road: When a TV show launches with that as its opening sequence, viewers are likely to stick around to see what happens next. And so they have. Five years later, Breaking Bad, about a chemistry teacher turned meth cook, has captured more than seven million viewers a week on average and an Emmy for best drama in its final season, which ends Sunday, Sept. 29.

Shares of
AMC Networks amcx 0.8394259409694016%AMC Networks Inc. Cl AU.S.: NasdaqUSD74.48
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734588AFTER HOURSUSD74.48
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20.574585635359117Market Cap
5326000918.89209
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N/ARev. per Employee
990278More quote details and news »amcxinYour ValueYour ChangeShort position
(ticker: AMCX), which carries Breaking Bad, are up 35% this year, versus 19% for the Standard & Poor's 500. Stocks typically trade on expectations of future profits. For AMC investors, there's much to look forward to even as one hit show comes to an end. The stock, at $66.88, could climb 20% over the next year, to $80. It could also make a tempting takeover target for a media heavyweight.

AMC's growth potential stems from its portfolio of underutilized cable properties. Its AMC, IFC, Sundance, and WE tv channels all started as movie venues, but the rise of
Netflixnflx -1.1535658511192088%Netflix Inc.U.S.: NasdaqUSD474.71
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106.91666666666667Market Cap
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2246800More quote details and news »nflxinYour ValueYour ChangeShort position
(NFLX), iTunes, and on-demand cable services has forced a rethink. "Technology advances made movie channels less necessary," says AMC Chief Executive Joshua Sapan. "So we embarked on a mission to convert our channels to ones with original programming." Prices for ads run against original content are two to three times those for ads run against movies.

This year, AMC's revenue is expected to climb 16% to $1.6 billion, fueling a 73% jump in earnings per share, to $3.26, rising to $3.93 next year. Breaking Bad isn't AMC's only hit. The Walking Dead, a zombie thriller, scored nearly 14 million weekly viewers in its most recent season. Mad Men, about 1960s ad execs, and Hell on Wheels, about an 1860s gunslinger, each had more than three million weekly.

Still, only 6% to 7% of the AMC channel's airtime in a typical week is original programming, says Vasily Karasyov, an analyst at investment bank Sterne Agee and former strategist for Sony Pictures. That could double over five years, he says. The other channels are just getting started in their transformations. IFC (or Independent Film Channel) will increasingly focus on alternative comedy. Coming shows include The Birthday Boys, a sketch comedy produced by Ben Stiller and Bob Odenkirk, in October; The Spoils of Babylon, a Will Ferrell miniseries, early next year, and the second season of Maron, featuring comic Marc Maron, also next year. WE tv, focused on women, gets its first scripted drama, The Divide, next year. For a sense of the long-term potential, look to the lucrative, female-targeted Bravo and E Networks, says Macquarie Capital analyst Amy Yong. Sundance, which launches ads Oct. 1, is working on its second wholly owned original series, The Red Road; its first, Rectify, returns for a second season next year.

As for the AMC channel, Mad Men has one season left, split between 2014 and 2015. The Walking Dead returns in October and a Breaking Bad spinoff called Better Call Saul is in the works. So is a companion series for The Walking Dead. The latter franchise is much more important, not only because it has a larger audience, but because AMC owns it, whereas it licenses Breaking Bad from Sony. Owned shows bring a bigger cut of the profits. AMC had high hopes for Low Winter Sun, a Detroit cop drama that debuted this year. It has brought in 1.9 million weekly viewers to date, which was "just about where we projected," says Sapan.

Investors might fear a write-off due to the show's ho-hum performance. AMC shares have backed off from over $70 just before the show debuted in early August. But while not everything AMC touches turns to ratings gold, it's worth keeping in mind that Breaking Bad debuted with a smaller audience: 1.4 million a week in its first season. The show worked in part because viewers later caught the first season on Netflix and came back to AMC for more.

A lot of life is left in zombies for AMC.
Gene Page/Everett Collection

IT'S A MISTAKE TO invest in an entertainment company based on a hunch that this or that show will work. "If I told you years ago that MTV would have a mega-hit show about five kids hanging out on the Jersey Shore, you'd have thought I was smoking something," says Karasyov.

The thing to look for is a management team that can keep costs in check and take measured risks while generating plenty of cash. For example, Talking Dead, which immediately follows Walking Dead on AMC, is a stroke of genius. With little more than the affable and affordable Chris Hardwick to host a chat and recap of the show, it brings in more than three million viewers each week.

A rise in original content also helps AMC negotiate for higher fees from affiliates—one-third of its contracts are up for renewal over the next couple of years—and cash in on digital and overseas distribution. The company is expected to generate $255 million in free cash flow next year—equal to more than 5% of its stock market value—rising to nearly 8% in three years, even as it invests in new content.

The Bottom Line

New original programming could drive profit up 20% next year. The shares could reach $80 in a year, from $66.88.

AMC IS SPENDING ITS spare cash to quickly reduce debt, which stood at $2.2 billion as of June. That could help lift the stock from its current valuation of 17 times next-year earnings forecasts to closer to the 19 times earnings held by less-indebted
Scripps Networkssni 2.2501380452788515%Scripps Networks Interactive Inc. Cl AU.S.: NYSEUSD74.07
1.632.2501380452788515%
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20.40495867768595Market Cap
9537680477.31854
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1.2420683137572566% Rev. per Employee
1211570More quote details and news »sniinYour ValueYour ChangeShort position
(SNI), which owns HGTV and the Food Network. A valuation of 18 times forward earnings a year from now would put AMC at just over $80 a share. A deep-pocketed media company could view AMC as a relatively clear programming slate with a big reach; AMC goes into nearly 100 million households, WE tv 80 million, IFC 70 million, and Sundance 50 million.

Some companies have key-man risk or key-product risk. In the near term, AMC may have zombie risk. What if viewers suddenly tire of them? That won't happen, predicts Sapan, because the show is mostly about the struggles of its living characters. "Walking Dead is in its childhood," he says. "We can do 10 more years of zombies."